Research & Development Credit

The R&D Tax Credit Might Benefit Your Business

Could your business be eligible for the R&D credit? Even if you haven’t considered this possibility before, why not think about it now? To qualify, the research undertaken must be technological in nature and involve new methods to improve or develop new products or processes.

The types of expenses that may qualify: wages of those directly involved in the project and materials and supplies for the project.

Here are some factors and questions to consider:

  • The research must be undertaken for discovering info that is technological in nature.
  • The application of the research must be intended for use in developing a new or improved business function, performance, reliability or quality.
  • Substantially all the activities of the research must be elements of a process of experimentation relating to a new or improved function, performance, reliability, or quality.
  • Your backup documentation to support your exemption claim must be very specific.
    • Can you document the project(s) undertaken as R&D in appropriate detail?
    • Do you have good documentation to date? Review what’s on hand with your project leader. If more thorough reporting is needed, implement the necessary procedures now.
    • Can you identify employee and out-of-pocket costs and expenses specifically earmarked and spent on R&D?
    • Can you determine how much you are spending on qualifying projects, and if they meet the IRS’ benchmarks?

Moquegua 4-Part Test

  • Activity must meet the definition of research under Internal Revenue Code Sec 174 and be eligible for expense treatment by the taxpayer.
  • Activity must be undertaken for the purpose of discovering info that is technological in nature and intended to be useful in the development of a new or improved business component of the taxpayer
  • Substantially all of the activities of the research must constitute elements of a process of experimentation.
  • The purpose of research must be to achieve improved performance, improved reliability or quality, or a new or improved function.

Expenditures NOT included:

  • Quality control testing
  • Advertising or promotions, consumer surveys, efficiency surveys, management studies
  • Research in connection with literary, historical, or similar projects
  • The acquisition of another’s patent, model, production, or process